The five-member board, led by bank President Julio Velarde,
yesterday kept the overnight rate at 4.25 percent, matching the
forecasts of 16 economists surveyed by Bloomberg.

Policy makers increased reserve requirements Oct. 1 for a
second straight month as consumer demand fuels credit growth and
investors move money into South America’s fastest growing
economy. The bank expressed confidence that prices will ease in
the context of growth that had stabilized near “sustainable
levels” even after inflation accelerated for a fourth month in
September and doubts about the global economy remain.

“Despite these factors, inflation is expected to gradually
return to the target range in the coming months,” policy makers
said, according to a statement posted on the bank’s website. The
bank’s board attributed the faster-than-targeted inflation to
temporary supply factors.

The central bank increased the average reserve requirement
by 0.5 percentage point for local and foreign currencies this
month, after a similar increase in September. Banks’ average
ratio was 16.2 percent for soles in August and 39.5 percent for
dollars.

Target, Trend

Peru’s inflation rate, which was running at 3.74 percent
through September, will slow to within the bank’s target range
of 1 percent to 3 percent “within coming months” as
international grain prices fall and local harvests improve,
central bank research director Adrian Armas said.

“We’re seeing improved global supply of products like
wheat, soybean and corn,” Armas said on a conference call with
reporters today. “Harvests in Peru were also better in October,
which should lead to a substantial reduction in inflation.”

The $176 billion economy expanded 7.2 percent in July, the
fastest pace in 11 months, as construction activity surged. The
government is rolling out an infrastructure-heavy fiscal
stimulus package equivalent to 2.5 percent of gross domestic
product to offset falling exports.

Trade, Growth

Shipments overseas dropped 20 percent to $3.71 billion in
August from the same month of 2011, the steepest decline this
year, as copper, gold and coffee prices fell, Peru’s national
statistics agency said yesterday.

Imports rose 9.3 percent to a record $3.66 billion, led by
capital goods for the mining and energy industry, fuel,
televisions and cars. Metals account for almost two thirds of
the nation’s exports.

Peru will be South America’s fastest growing economy in
2012 and 2013, expanding 6 percent and 5.8 percent respectively,
according to the International Monetary Fund.

Inflation, Global Risk

Peru’s consumer prices rose 0.54 percent in September, the
fastest pace in six months, the statistics agency said Oct. 1.
The increase pushed the annual inflation rate up for a second
straight month.

Though last month’s price increases were a bit higher than
the central bank was expecting, the annual rate will slow to 3
percent by the end of December, Velarde told reporters Oct. 3.
Consumer prices will rise 0.1 percent a month in the current
quarter, he said.

“The central bank uses its benchmark rate to manage
inflation and that’s calculated to end the year within the
target range. There’s no need to use this tool,” said Carlos Montalvan, chief executive officer at Interfondos SAF, the
country’s fourth-largest mutual fund manager, in an Oct. 4
interview. “There’s still a small possibility that Europe will
fall over, so it’s better for the bank to keep the rate at 4.25
percent and have margin to lower it quickly than to use it today
and be left without bullets.”